The UK Supreme Court this morning (11 March 2015) handed down its judgment in the eagerly awaited debt trading case Tael One Partners Limited v Morgan Stanley & Co International PLC [2015] UKSC 12. The case deals with the apportionment of loan receipts between the buyer and seller of a debt in the secondary market where payments other than interest and recurring fees are payable under the relevant Finance Documents.

Repayment premium

The Court was asked to answer whether a payment premium, payable by the borrower at the time of repayment of the loan, was required to be apportioned amongst parties to a debt transfer. Tael One (the seller) contended that the seller of a participation in a loan was entitled to the proportion of the payment premium which had accrued at the time of the transfer, which the Commercial Court agreed with at first instance. Morgan Stanley (the buyer) appealed successfully to the Court of Appeal, who agreed that the payment premium belonged to the buyer under the standard terms.

Decision – LMA terms narrowly construed

The Supreme Court dismissed Tael One's appeal unanimously. They decided that once the sale had been completed the entire payment premium was payable to the buyer of the debt. The seller's argument that the interest and fee apportionment provision when taken in the context of the LMA terms as a whole meant the payment premium was to be apportioned on a time basis was conclusively rejected. The Supreme Court pointed out that the premium did not accrue over time in any commercial sense it was simply a payment which accrued on the occurrence of a defined event.

The Court also noted that a loan may be traded many times, between many parties, and the commercial context supports the natural meaning of the clause.


The Supreme Court's decision maintains the sanctity of debt markets, and allays any remaining doubts that the seller to a debt transaction might have recourse to further monies on repayment of the underlying debt. While the LMA terms for sale of debt in the secondary market have undergone several iterations since the 2010 version, the fundamental point at stake remained the same; namely, what the buyer of the debt was paying for. Where a participation in a loan agreement is to be sold or acquired in the secondary market both parties need to review in detail the payments obligors may be obliged to make and ensure that the benefit of that payment obligation is properly priced into the deal.

Tael One Limited v Morgan Stanley & Co International PLC (PDF)